Bengzon’s medical empire in turmoil

Gerry Lirio, ABS-CBN News

Posted at Sep 17 2018 11:22 PM

The medical empire of former Health Secretary Alfredo Bengzon is in turmoil, with a faction of its stockholders led by his own nephew working to unseat him. 

Bengzon, the longtime CEO of The Medical City (TMC), rescued the institution from near bankruptcy in the 1970s and built it up into one of the biggest healthcare institutions in the Philippines with an army of doctors and health professionals. 

But now, it has two rival factions with their own boards and officials.
 
Last September 13, Bengzon’s nephew Jose Xavier B. Gonzales, head of TMC’s Customer Engagement Group, and Dr. Eugenio P. Ramos, led a faction that held a special stockholders meeting. They elected Gonzales as chair and Ramos as president and new CEO.

In an interview with ABS-CBN Sunday, Bengzon minced no words in criticizing his nephew for the election which, he said, may cause “serious and imminent threat to the hospital’s operations, the patients’ lives and safety.”

“This election is a story of greed and deceit by a man who has sold his soul,” he said about his nephew, which he himself recruited to the firm years ago.
 
On September 14, the 83-year-old Bengzon placed Gonzales and Ramos on a 30-day preventive suspension. 

But late Monday afternoon, Pasig Executive Judge Danilo Cruz issued a 72-hour temporary restraining order stopping Bengzon from suspending Gonzales and Ramos.

A nephew called ‘Eckie’

An investment banker who studied in Harvard, Gonzales is the eldest son of Bengzon’s eldest sister. Gonzales is now in his early 60s, according to his friend.

Also called "Eckie," Gonzales was the old man’s favorite nephew until the corporate feud broke them apart. 

“Everybody knows who is Eckie, who he is to me. He was my trusted guy, and I didn’t realize he took advantage of it,” Bengzon said.

According to Bengzon, the Gonzales group should have waited for the Securities and Exchange Commission (SEC) to rule on their pending cases seeking to resolve which of them had the legal basis to control the hospital chain. One of these cases accused Gonzales of fraud in acquiring his shares. Only after this issue is resolved, can the annual stockholders’ meeting be held, Bengzon added.
 
The annual meeting should have been held last June 1, but the two pending SEC cases filed on May 31 and on June 8, cases effectively aborted it.
 
Heart-to-heart conversations

Bengzon said he tried to stop Gonzales, Ramos and their supporters from holding the special meeting of their faction. 

There were eight one-on-one meetings between Bengzon and Gonzales that began last December 17 in Bengzon’s office. In these meetings, the two talked about many things, ranging from family to hospital affairs. 

They also talked about what went wrong between them, with Bengzon saying that if their dispute became public and went to court, it would be a great scandal that “would strain family ties that strongly bind.”

In those eight meetings, Gonzales maintained he did not commit anything wrong. On the contrary, a source close to Gonzales said, he had in mind only the hospital’s interests. TMC needed new investors to fund its expansion plans. 

The meetings were held months after the TMC board discovered Gonzales’ alleged “anomalous” corporate deals with his foreign partner, Clermont of Singapore, which now owned a 25 percent stake in the hospital.

When combined, Gonzales’ 29 percent and Clermont’s 25 percent comprise the majority. They called for the annual stockholders meeting to be held as scheduled. 

“But a vote for the annual election now is vote in favor of fraud,” a hospital official said.

Over several months, the rival factions tried to convince TMC doctors and other personnel to their cause.

Loan agreement

In its complaint, Bengzon’s camp said Gonzalez acquired his shares via a $38-million loan from Clermont under an agreement dated August 1, 2013.
 
Gonzales and Clermont purchased the shares when Splash, San Miguel and Insular Life unloaded their hospital shares. But the board, Bengzon’s camp said, had no sufficient and prior knowledge of these transactions. 

Gonzales did not sufficiently inform the board about his deal, Bengzon said, as this would have obliged him to offer to buy out the rest of the stakeholders under the same terms.

Fraudulent?

In the ABS-CBN interview, Bengzon said Gonzales’ share-acquisition was discovered only after the Ayala Group expressed interest in investing in the hospital for its expansion. 

While doing due diligence, Ayala stumbled on the Gonzales-Clermont deal which it said, could block the group’s investment.

Gonzales was said to have agreed on a proposal for Ayala to buy him out, but he changed his mind at the last minute for fear that Clermont may sue him in court.
 
“Illegal, immoral”

Bengzon described the Sept. 13 election as illegal, immoral and defiant of a communication from the SEC.

In an order dated September 11, SEC’s General Counsel Camilo Correa suspended the calling of an annual stockholders’ meeting until after the SEC’s Special Hearing Panel resolved “the rightful ownership of the shares” of Professional Services, Inc., the group managing the hospital that Bengzon heads.
 
“Consistent with the commission’s policy of interdepartmental courtesy and cooperation, it is prudent to defer any action on this calling of annual stockholders’ meeting case until the more issue of ownership is resolved by the Special Hearing Panel,” Correa said. The SEC created the panel after it received the two complaints filed by the Bengzon camp.

Bengzon said they had deferred the annual stockholders’ meeting while the SEC resolved the ownership struggle between him and his nephew. 

But the election of Gonzales group effectively created two boards. Which one the SEC will bless remains to be seen. 
 
As of Monday afternoon, the SEC has not issued any word on the cases filed against Gonzales. There also was no order that would settle the issue on whether or not to proceed with the annual stockholders’ meeting. Neither had the commission issued any order recognizing the new board.

From a dilapidated building, the Medical City now stands on a 1.5-hectare property along Ortigas Avenue in Pasig City. Its website says TMC is a growing healthcare network, with provincial hospitals strategically situated in Clark, Iloilo, Laguna, and Pangasinan, with a network of over 40 clinics in strategic locations scattered all over Metro Manila and in select provinces. It also has a branch in Guam.
 
Bengzon knows he is old. But he’s not about to let what he painstakingly built be taken from him without a fight.